The audacious declaration of the establishment of a new Islamic state made by the al Qaida breakaway group Isis has sparked celebrations in its Syrian stronghold but condemnation from elsewhere.

The Islamic State of Iraq and the Levant (Isis) has overrun much of northern Syria and neighbouring Iraq

It unilaterally announced the creation of a new Islamic caliphate - a state governed by Shariah law - in an audio recording released late last night.

The group proclaimed its leader, Abu Bakr al-Baghdadi, the caliph of its new state and demanded that Muslims everywhere pledge allegiance to him.

It also said it was changing its name to the Islamic State, dropping the mention of Iraq and the Levant.

Through brute force and meticulous planning, the Sunni extremist group has carved out a large chunk of territory that has effectively erased the border between Iraq and Syria and laid the foundations of its proto-state.

Along the way, it has battled Syrian rebels, Kurdish militias and the Syrian and Iraqi armies.

Following the announcement, Isis fighters in their northern Syrian stronghold of Raqqa paraded through the city to celebrate.

Some wore traditional robes and waved the group's black flags in a central square, while others zoomed around in pick-up trucks against a thundering backdrop of celebratory gunfire.

But the announcement was greeted with condemnation and even ridicule elsewhere in Syria, including from rival Islamist rebel groups who have been fighting Isis since January across northern and eastern Syria.

"The gangs of al-Baghdadi are living in a fantasy world. They're delusional. They want to establish a state but they don't have the elements for it," said Abdel-Rahman al-Shami, a spokesman for the Army of Islam, a rebel group.

"You cannot establish a state through looting, sabotage and bombing."

He described the declaration as "psychological warfare", which he predicted will turn people against the group.

In Iraq, where the government has launched a counter-offensive to try to claw back some of the territory lost to Isis in recent weeks, the declaration is viewed through the prism of the country's rising sectarian tensions.

"This is a project that was well-planned to rupture the society and to spread chaos and damage," said Hamid al-Mutlaq, a Sunni lawmaker.

"This is not to the benefit of the Iraqi people, but instead it will increase the differences and splits."

The extremists have seized upon widespread grievances among Iraq's Sunni minority and opposition to Prime Minister Nouri al-Maliki's Shiite-led government to help fuel a blitz through northern and western Iraq.

Its offensive has prompted Shiite militias to reconstitute themselves, deepening fears of a return to the sectarian bloodshed that pushed the country to the brink of civil war in 2006 and 2007.